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Section 7 | Lesson 40 - Forecasting, Budgeting, Fiscal Year

Notes

How do companies make budges How do they forcast

Forecastin is always based on a percentage of sales.

  1. forecast what your sales are going to be
  2. everything else is just a percent of revenue

when to companies forecast

  • Public companies forecast quarterly
  • Startups forecast monthly

    • most startups collapse

Fiscal years

  • companies note when a season ends
  • companies also regard their years as "ending" on a different months
  • some companies end on black friday

    • this is when they make their most money
  • japanese companies end in march

Ethics

  • be conservative and honest with forecasts
  • jailtime

    • it's easy to make clerical mistakes
    • overlook unethical co workers
  • some companies try to take from a different quarter to make up shortfalls

Cash Conversion Period Ratio

  • COGS: Cost of Goods Sold

    • how much it costs for goods for the day

examples

  • $5000 of inventory
  • COGS is $50
  • we have 100 days worth of goods

if we put $1 into inventory it won't be converted into cash for another 50 days

Inventory to sale conversion period

\(\text{ISCP} = \frac{\text{average inventories}}{\text{COGS} \cdot 365}\)